The Australian Competition and Consumer Commission today issued its view that Airservices Australia’s proposed price increases for air services such as air traffic control are too high and would cause Airservices to over-recover its costs by $35 million over five years.
Airservices is the monopoly provider of en route air navigation, terminal navigation and aviation rescue and fire-fighting services in Australia. These services are used and paid for by airlines and other aircraft operators landing at Australian airports and flying in Australian airspace.
The services are declared under Part VIIA of the Competition and Consumer Act 2010, which means that Airservices must notify the ACCC when it seeks to increase prices. The ACCC then has 21 days to respond. Prices are frozen during this time.
The ACCC’s role is to provide its view on whether proposed price increases are appropriate. The ACCC’s view is not binding on Airservices. Airservices can proceed to increase its prices once the 21 day price freeze period ceases. Airservices is also free to submit a revised pricing proposal, which could take into account the ACCC’s concerns.
In July 2011, the ACCC issued a view on a draft proposal by Airservices in which the ACCC raised three main concerns:
- prudency of capital expenditure
- drivers of efficiency, and
- rate of return on capital.
The ACCC noted that if Airservices addressed these matters in its formal price notification, the ACCC would not object to the related price increases. On 22 August 2011, Airservices submitted a formal price notification to the ACCC.
Airservices proposed to increase prices for terminal navigation and aviation rescue and fire-fighting services over the next five years.
“The ACCC is satisfied that Airservices has responded to two of its three earlier concerns by taking steps to increase industry consultation on capital expenditure and improve its drivers of efficiency, however the over recovery of costs remains an issue,” ACCC chairman Rod Sims said today.
The ACCC was prepared to accept the methodology for determining rate of return that Airservices used for its 2004-05 pricing proposal. This methodology has been applied successfully in the past. However, Airservices proposed to change one of its parameters used to estimate its rate of return. It is this amendment that forms the basis for the ACCC’s objection. The ACCC considers that it is not appropriate to alter one rate of return parameter without conducting a full review of all the parameters.
The ACCC has provided guidance to Airservices on what it considers to be a rate of return that is consistent with its previous price notification.
A copy of the ACCC’s decision will be available on the ACCC’s website.